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ARTICLE OF THE WEEK

The ability to develop a strategy and an efficient design of the overall service business is a challenge for the majority of the companies benchmarked. While nearly 40 percent of executives say that continuous optimization of the overall supply chain design of the service business is of the highest importance over the next three years, only one in 10 companies (11 percent) have high performance in this area today (Figure 6). Similarly, few respondents say they have achieved high performance in balancing cost and service level to customers (8 percent), and building scenario planning into network modeling (5 percent). Even worse, more than 30 percent of respondents say they are not doing well in building global tax efficiency into network modeling, and-rather unsettlingly-another 40 percent said they did not even know how they were doing in this area. Taking a holistic view of the business, including issues of tax and other regulatory and compliance issues, is of crucial importance to most complex companies struggling to get the value out of their global investments.*23

Building service excellence into the design of the business is difficult. Building it into the product design is perhaps even harder. But it is important. The cost and effectiveness of delivering customer service is typically heavily dependent on the design of the product being serviced. Yet only a few companies have effectively built service management into product innovation and lifecycle management decisions (Figure 7).

Another factor that frequently contributes to sub-optimal service businesses is ineffective organizational design, with a low level of investment in the people and competencies needed to drive top performance. Some companies invest up to 10 times more in their sales people than in their service staff. Given the strategic importance, profitability and growth potential of the service business relative to that of the overall business, the ability to attract and develop the right talent for the service business should be a key issue for top management. *24

For some companies, like Siemens Medical Solutions, a leader in providing imaging systems, therapy equipment, molecular diagnostics and hearing instruments, the service business is a strategic priority. Its customers increasingly expect to pay for equipment uptime-the time equipment is available for use by the customer. To achieve this, Siemens Medical Solutions is using state-of-the-art technologies, coupled with sophisticated processes and work flows, to deliver excellent customer service to its health care customers while controlling cost.*25 It is combining on-line, real-time repair information, inventory management, pricing, and invoicing with advanced logistics to equip service technicians with the right information and parts at the right time and place. For example, the company is using simple "drop-off points" (DOPs) or "lock-boxes" to stage parts near customers, reducing the travel (or wasted) time for high-cost and highly valued service technicians. The lever for optimizing the efficiency of the field service engineers is combining the predictability of when a part will arrive at the drop-off point with the scheduled service job of the engineer at the client site. For Siemens, service capabilities like these have been critical in making the €8 billion Siemens Medical Solutions one of its most profitable business groups.*26 But the company realizes that the drive to maintain and enhance service excellence is an ongoing battle. For example, it expects many customers' demands on response time to move from next-day service to same-day service in key markets around the world. This means that parts must be moved even closer to customers through one or more additional tiers of distribution centers, which will increase significantly the complexity of the service network. To reliably and cost effectively meet customer requirements in a more complex network, information systems and business processes need to be strengthened further to ensure a precise global view of parts available to service specific customers within a short time frame.


Operations Planning and Management: Enabling Service Excellence

A lack of capabilities for planning, managing, and monitoring the service business more effectively is holding back the performance of many of the companies we have studied. Planning is a challenge. Among the companies responding, the median forecast accuracy for parts demand is less than 80 percent; for 25 percent of the companies it is lower than 52 percent. Even less encouraging: nearly 70 percent of the companies surveyed are unable to report on the forecast accuracy for the service and parts business, suggesting significant problems in managing demand, inventories, and capacities. Many companies considered supplier responsiveness (49 percent) and long lead times (37 percent) major barriers to service excellence. With median on-time delivery rates from suppliers at a dismal 80 percent, this is understandable (Figure 8).

It is no surprise that one third (34 percent) of the executives indicate that inadequate information systems are a major obstacle to service excellence. In addition, more than 30 percent indicated that supply chain visibility was a major obstacle. Executives at many companies said they had no or very limited visibility into key operational metrics, such as inventory at dealers/customers (72 percent); demand and sales forecast at all distribution levels (46 percent); and global available-to-promise inventory to commit to customer orders (40 percent). (See Figure 9)

Experiences at companies such as Caterpillar show that processes and systems that create visibility across the supply and distribution network are fundamental to building service excellence. As far back as the 1970s, Caterpillar built a central global database for tracking inventory across its network, initially with a focus on parts originating from Caterpillar's central distribution centers. In 2002, the system was extended to include parts obtained locally to ensure global visibility to all parts in the distribution network.*27 With more than 600,000 spare parts and components, products that often need service for 40 years or longer, and complex global flows of parts and information, no improvement comes easy. But visibility provides a cornerstone to make it happen. With the benefit of this improved visibility, together with better processes, and better technologies, Caterpillar has since the late 1980s been able to reduce its service parts inventories by half while improving its already highly regarded customer service. Caterpillar can fill and ship an order in 24 hours or less 99.7 percent of the time. For Caterpillar, customer service levels rate as the top factor in generating repeat business. In addition, these improvements are saving the company in excess of US$460 million annually.*28 Despite impressive results to date, Caterpillar is not resting on its laurels. Recognizing that its core competency is supply chain management and logistics, and not in software development, the company is developing its next-generation global service and parts management system in joint collaboration with SAP, Ford Motor Company, and Deloitte Consulting.

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